Newest Details of the Foreclosure Settlement. “Must Read”

This new program could be a game changer, and bring the market out of the doldrums…… John DeCosta, Keller Williams

Officials from more than 40 states have signed onto a record $25 billion settlement with the five biggest banks related to foreclosure abuses including “robo-signing” of documents.

The settlement would require banks to provide billions of dollars in aid to homeowners who have lost their homes to foreclosure or who are still at risk.The deal would set aside up to $17 billion specifically to pay for principal reductions and other relief for up to one million borrowers who are behind on their payments but owe more than their houses are currently worth. The deal would also provide checks for about $2,000 to roughly 750,000 who lost homes to foreclosure.

The banks — led by the five biggest mortgage servicers, Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial — want to settle an investigation into abuses set off in 2010 by evidence that they foreclosed on borrowers with only a cursory examination of the relevant documents, a practice known as robo-signing. Four million families have lost their homes to foreclosure since the beginning of 2007.

The deal with Bank of America, Wells Fargo, Citigroup, JPMorgan Chase, andAlly Financial will reportedly total $25 billion. Some $17 billion of that would go toward writing down mortgage principal for an estimated 850,000 troubled borrowers, $3 billion could go toward restitution payments of $1,500-2,000 each to borrowers who lost their homes to foreclosure, and the rest could go to state funds for foreclosure relief

The biggest remaining holdout, California, has returned to the negotiating table after a four-month absence, a change of heart that could increase the pot for mortgage relief nationwide to $25 billion from $19 billion.

If banks fall short of the multibillion-dollar benchmarks set out for principal reduction and other benefits for homeowners, they will have to pay the difference plus a penalty of up to 40 percent directly to the federal government, according to Mr. Madigan.

The depressed housing market continues to pose a drag on the halting economic recovery. Some 11 million families owe more on their houses than they are worth.

The settlement, if all states participate, will also include $3 billion to lower the rates of mortgage holders who are current. Banks will get more credit for reducing principal owed and helping families keep their homes, and less for short sales or taking losses on loans that were likely to go bad, like those that were severely delinquent.